India: Impact Of The Companies (Amendment) Ordinance, 2018 On Registration Of Charges

Last Updated: 14 January 2019
Article by Amey Pathak, Abir Dey and Apoorv Jain

On November 2, 2018, the Ministry of Corporate affairs promulgated an ordinance1 (the Ordinance) inter alia amending certain provisions of the Companies Act, 2013 (the Act). One of the amendments is for the purpose of reducing the extended timelines for filing a charge created by a company as per Section 77(1) of the Act upon payment of additional fees prescribed by the Registrar.

The Original Provisions of Section 77(1) of the Act as it stood prior to the amendment are as follows:

"77. Duty to register charges, etc.—(1) It shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with the Registrar within thirty days of its creation:

Provided that the Registrar may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of such additional fees as may be prescribed:

Provided further that if registration is not made within a period of three hundred days of such creation, the company shall seek extension of time in accordance with section 87:

Provided also that any subsequent registration of a charge shall not prejudice any right acquired in respect of any property before the charge is actually registered."

The Ordinance seeks to reduce the timeline of 300 days available under the first proviso to Section 77(1) depending upon the timing of the creation of a charge by a company. In terms of the Ordinance, in the event the charge is created before the date on which the Ordinance has been notified, i.e., November 2, 2018 (Ordinance Promulgation Date) and has not been filed within the 30 day timeline as set out in Section 77(1), such charge can be filed with the relevant Registrar of Companies within 300 days from the date of the creation of the charge as per the first proviso to Section 77(1) with payment of additional fees as may be prescribed. In the event a company fails to register the charge within the said timelines under the first proviso, the second proviso, which stands amended under the Ordinance, provides that the company can register such charge within six months from the Ordinance Promulgation Date with the payment of additional fees as may be prescribed depending upon the class of companies.

Similarly, if a charge is created on or after the Ordinance Promulgation Date and has not been filed within the 30 day timeline as set out in Section 77(1), such charge can be registered within the extended timeline of 60 days from the creation of the charge as per the first proviso to Section 77(1), with payment of additional fees as may be prescribed. If, a company fails to register the charge within the said timelines under the first proviso, the second proviso provides that the company shall be required to register such charge within a further period of 60 days thereafter with payment of ad-valorem fees as may be prescribed.

Analysis

The following example illustrates how the Ordinance creates an ambiguity in relation to the timeline registration of charges created prior to the Ordinance Promulgation Date.

For illustration, if a charge is created on January 10, 2018 (prior to the Ordinance Promulgation Date), the same, if not registered within the 30 day timeline as set out under Section 77(1), can be registered by November 5, 2018 (300th day from date of creation) in accordance with the first proviso set out in the Ordinance with payment of additional fees as may be prescribed. However, according to part (a) of the second proviso, if the charge is not filed within 300 days of creation of such charge, which in this instance shall be November 5, 2018, the same can be filed within six months from the commencement of the Ordinance, i.e. May 1, 2019.

However, in the event a charge is created on November 1, 2018 (prior to the Ordinance Promulgation Date) the same, if not registered within the 30 day timeline as set out under Section 77(1), could be registered by August 28, 2019 in accordance with part (a) of the first proviso as set out in the Ordinance. Should the company fail to register such charge by August 28, 2019, it is possible that no additional time as contemplated under part (a) of the second proviso may be available to the company to register the charge as the timeline to register the charge, as per part (a) of the first proviso of the Ordinance, i.e. the 300 days, exceeds the timeline provided under part (a) of the second proviso.

Further, the erstwhile second proviso under Section 77(1) of the Act which provided a reference to an application to the Central Government under Section 87 of the Act for extension of timelines for filing of a charge if such charge had not been filed beyond timelines under the Act has now been amended. The Ordinance has taken away this right from the company leading to ambiguity as to whether a company could register the charge at all after exhausting the new timelines prescribed under the Ordinance.

In view of the same we await for further clarification from the Ministry of Corporate Affairs. The applicable rules are also required to be amended accordingly, in order to be consistent with the amended provisions, related to registration of charges, of the Ordinance.

Footnote

1 Companies (Amendment) Ordinance, 2018

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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